Costs To Consider When Buying A House
The costs relating to buying a house can vary considerably depending on the size, location and value of it. Buying a house is not like buying a shirt, or even a car, there are many associated costs involved in the process which require careful planning and consideration, mainly because, in the most part, these costs are unavoidable, and exist whether you are a first time buyer (FTB) or are purchasing a house for the fourth or fifth time.
As a result of this, buying a house can take many years of planning, in order to save money and monitor the market to judge when it is the best time to enter it. It is common for people to put house-moving plans on the backburner, not because they can’t afford to buy a particular property, but because they can’t afford the associated costs. These are mainly upfront costs and can’t be factored into more manageable monthly payments like a mortgage, so it is time to get all your ducks in a row and make sure you have available funds to cover these initial costs.
Although there can be a vast difference in the costs you pay out, depending on the property you are purchasing, a general rule of thumb is to allow for around 10% of the purchase price in costs. This is no guarantee, but may help you in budgeting towards the cost of moving and to be fully prepared. Here we have put together a comprehensive guide to the house-moving process, with average associated costs broken down for each stage. This should allow you to enter into the process with your eyes wide open, and ensure that there are no hidden costs or nasty surprises further down the line.
What is a typical house-buying process?
Many of the costs of moving come straight away at the start of the process, and it can feel like you are haemorrhaging money with wild abandon, with payments being made to various parties almost every day. However, this soon slows down and although the timespan might change and there might be more or less complications, the house-buying process is roughly the same in each case, so these costs can be prepared and budgeted for.
So usually you will start by saving a **deposit **if you are a FTB or if not you will hopefully have some equity in the property you are selling. At the same time that you are viewing properties and making formal bids, you can be arranging a mortgage deal with a lender. The lender will carry out a valuation when you have had an offer accepted, and you need to arrange for surveys to be carried out. Then you will arrange with a solicitor to work on the conveyancing. This is the legal process which involves searches and other disbursements, then you will pay stamp duty. When all this is completed you will face removal costs and any initial outlays on the house, before moving in and preparing for the ongoing costs of living there.
This should give you a brief outline of the typical costs involved in the process, and now we will look at each one in more detail.
It is a long time since mortgage lenders offered 100% mortgages, so it is accepted now that a deposit is required to secure a property. A FTB would be expected to offer between 5 to 20% of the purchase price as a deposit, though this tends to average out at about 10%. This is a realistic aim if you are looking to save up money for a deposit, and on the average FTB property, ie. an entry-level two or three-bedroom property, 10% is around the norm. Of course if are able to save up more and offer more as a deposit, this will make your mortgage smaller and hence your monthly repayments and the interest you pay will be smaller too. But bear in mind the other costs you are faced with and make sure you have money put aside to cover everything.
This is key to you being able to finance the purchase of the house and it is a good idea to have an agreement in principle in place even before you start viewing properties. This takes into consideration your income and personal circumstances and ‘in principle’ confirms what a lender would be prepared to offer you. This enables you to view a range of properties knowing what you can afford to buy. There should be no cost to establishing this.
Once you have viewed a property, made an offer and had your bid accepted, you need to agree a more specific mortgage deal. The costs here come in three parts:
Arrangement fee – This is essentially an admin fee and is paid to the lender either as an upfront payment or is incorporated into the eventual monthly repayment figure, obviously making this higher but possibly more manageable. The cost will vary depending on the size and value of the property and can be up to around £2,000.
Valuation fee – The lender needs to be reassured that the money they are lending you is fairly represented by the value of the property. So they undertake a valuation survey which doesn’t look into the detail of the condition of the property but just assesses its market value. Some lenders will do this for free and there will be no cost attached, but others do charge, and this could be up to £1000 depending on the size of the property involved.
Broker fee – A mortgage broker is someone who advises you on the different mortgage deals available and facilitates the deal taking place. Sometimes these are effectively acting on commission so you may also need some independent financial advice. But if you take a mortgage broker’s advice and agree a deal on a product they have offered you, they could make a small charge of around £500 to £600. It is possible to find a fee-free mortgage deal, but these may not be as cost-effective and may involve higher interest rates, so you need to shop around and choose carefully.
These are done to protect the buyer against possible problems with the integrity of the house, or with the infrastructure. So this could be to protect against things you can’t really see when you view a property. This could be structural, subsidence, damp, insulation, electrical, plumbing and heating, roofing problems or guttering problems.
Surveys can be arranged on a scale of how detailed they are, and naturally the cost of these will go up accordingly. A Home Condition survey is the cheapest and least detailed, whilst most people opt for either a Building Survey or a Homebuyers Report. These are full structural surveys which will highlight any potential issue which could affect the value, or cost you money in repairs after completion and you have moved in. You could opt for the cheapest type of survey if you are very confident over the condition of the house, or if it’s a new-build.
For new-build properties there is also a ‘Snagging Report’ which effectively surveys the quality of the build. Of course you would not expect big structural issues with a brand new house, but there may be things like poor workmanship with plastering, units, loose tiles or doors sticking, which should be rectified before you move in.
Costs will vary depending on the size and value of the property being surveyed. According to Designsonproperty.co.uk, October 2018, these are the range of costs from a property valued at up to £99,000 to a property valued at over £500,000 +
Home Condition Report £400 - £950
Homebuyer Report £450 - £1,000
Building Survey £600 - £1,500
Snagging survey (For new-build homes) £300 - £600
Although surveys are to give you reassurance when you are buying a property, you also have options if potential or very definite problems are uncovered. You can ask the seller to rectify these problems at their own expense before you proceed, you can pull out altogether (you may lose out on costs you have already paid if you take this option) or you can negotiate the cost of these to be taken off the purchase price. These discussions can delay the process and can be very delicate, so you need to take advice and make a careful judgement to ensure the sales process still continues as you want it to.
The legal process of buying a property is another essential and unavoidable cost. You need to find a solicitor who has an expertise in conveyancing, and you are perfectly entitled to get quotes from as many legal firms as you like to see what they can offer you.
Legal fees are essentially broken down as follows:
Conveyancing – a flat fee or a percentage of the purchase cost, which is usually around £500 to £1500.
Money transfer – a cost for processing money transactions between the mortgage lender and yourself, and between the seller and yourself. This is usually less than £50.
Land Registry – this is the cost of transferring the title of ownership in the property deeds with the Land Registry. This usually costs around £100 to £150.
Searches – these are known as disbursements, and are the process of going through local authority planning details and land registry records to find potential problems over things like boundary anomalies, previous disputes, local flooding or subsidence issues, or any upcoming planning proposals which the buyer needs to consider because they may affect the value of the property. Searches usually cost around £200.
It is also possible that legal fees can increase depending on whether the property is freehold or leasehold. Because a leasehold property can add a different level of complexity.
This is essentially a tiered tax on land and property being purchased, and is probably the largest cost a homebuyer will face. Rules over stamp duty often change and can vary between England, Scotland, Wales and Northern Ireland, which can make a big difference over what you are paying at any one time.
Until September 30<sup>th</sup> 2021 there is a stamp duty holiday in England and Northern Ireland due to the Coronavirus pandemic. This means that anyone buying a new home up to the value of £250,000 is exempt from paying stamp duty.
Ordinarily, however, stamp duty is only applicable to properties valued at £125,000 and above. FTBs are also currently exempt from paying stamp duty on any property up to the value of £300,000. Over that amount they will pay 5% on the portion that is between £300,000 and up to £500,000.
Another anomaly is that people investing in a second home, for example to enter into the buy-to-let market, face a 3% surcharge on top of the normal stamp duty rate for that property.
Once the stamp duty holiday in the UK ends, the normal rates for stamp duty will revert to the following, based on property values:
0 - £125,000 value = 0%
£125,001 - £250,000 = 2% of the purchase cost
£250,001 - £925,000 = 5%
£925,001 - £1,500,000 = 10%
£1,500,000 + = 12%
This is another cost that differs on a rising scale depending on the size of the house you are buying and, more specifically, how far away it is. But the good news is that, at last, this is a cost that you can potentially avoid, if you have a legion of willing and able helpers. Removal can be a DIY job, but practically-speaking, only if you have a relatively small amount of belongings and are only travelling a moderate distance.
Packing up a three or four bedroom house and transporting it 200 miles across country should really be a job for professionals, but on the other hand, a FTB might just be moving a few boxes and suitcases and having things like beds, sofas and white goods delivered direct to the new house.
At the end of the house-buying process it is certainly not unusual to see people opting to do this themselves, but if you do seek a professional removal company you can gather quotes from several and compare the costs. Generally speaking you are paying for van hire and labour costs, but you can also pay for extras, such as professional packing of your old house and also things like furniture re-assembly at the other end. Again, however, this is something you can do yourself. Depending on how big a van you need, how much labour you need and how far they have to travel, expect to pay up to around £1500 for a professional removal team.
Other costs you might face when moving into a new home include:
Storage – If there is a time lag between selling a previous home and moving into a new one, you may need to pay for temporary storage. You can also use this for storing possessions you have had to buy early if you are a FTB. Storage is normally costed at a price per square metre, but choose this carefully, you would be surprised how much you can fit into a small space if you think and stack carefully. You will pay monthly and these places are usually flexible to allow you to extend the period as necessary.
Mail redirection – You can pay a fee for mail addressed to you to be forwarded to your new address. This can otherwise be a nuisance for both you and whoever now lives in your previous property, and you usually pay a fee for a period of three to six months, which will be around £30 to £40. After that you should have been able to change all your key addresses and all that will be left should be junk mail.
Repairs and maintenance – In some cases you might have accepted findings from a survey and decided to undertake the repairs yourself, either in return for a reduced price or to speed up the sale because it wasn’t worth worrying about. These costs will now need to be faced.
Redecorating – This is another DIY job if you have the energy after moving in, or you can even do it before moving in. Given it is another cost on top of everything else, many people choose to live with the current décor and apply some patience in making the house their own a few weeks or months down the line.
Furnishing – Of course you can use items that you have brought with you or inherited from your parents’ house, but many people also opt to buy new furniture and white goods when they move into a new home. This can involve a new fridge, freezer, cooker, washer, dryer, microwave, dishwasher, as well as new beds, sofas and table/chairs etc.
Insurance – Buildings insurance is a staple requirement of a mortgage lender and needs to cover the full value of the buildings from the date of completion. Contents insurance is for your own benefit but should fairly reflect your belongings and their value. Life insurance is also required to cover the cost of any mortgage debt on your loved ones, in the event of your passing.
Utilities – These are everyday costs which you may never have had to worry about before if you a FTB, but can come as an immediate shock when you are enjoying your first home. They can also vary considerably from your previous home if you have moved to a different area or the house is much bigger. In general, the costs you need to consider are council tax, electric, gas, water, broadband, phone and TV licence.
Selling a house too?
In the event that you are also selling a house, on top of these costs outlined here you will need to consider the cost of preparing the house for sale, ie. any repairs or decoration, maybe improvements to the external face of the property or the garden. But the main selling cost is to estate agents. This is to cover advertising and marketing the property, handling viewings, printing sales literature and administration of the sale via solicitors and mortgage lenders.